| Course | MAT 444 Finance for Managers |
|---|---|
| Module | Module 7 |
| Paper type | Capital budgeting evaluation |
| Length | About 1,119 words, 7 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | Business Administration |
| Updated | October 2026 |
Free sample paper for MAT 444 Module 7
Six Methods, One Laser Cell: Why Net Present Value Says Yes, the Hurdle Says No and Payback Says Hurry Up
Student Name
Business Administration Program, Aspen University
MAT 444: Finance for Managers
Instructor Name
Month Day, Year
Six Methods, One Laser Cell: Why Net Present Value Says Yes, the Hurdle Says No and Payback Says Hurry Up
Module 6 forecast the cash flows of the $2.4 million fiber laser cutting cell Haverstock Fabrication is considering. Module 5 set the company's cost of capital at about 11.8%, while the owners have long required 15% of new equipment. This paper applies six methods to the forecast, shows where they agree and disagree, and explains which should govern the board's choice. Haverstock and its numbers are invented; Module 8 tests the risks and makes the recommendation.
The Cash Flows
| End of year | Start | One | Two | Three | Four | Five | Six | Seven |
|---|---|---|---|---|---|---|---|---|
| Cash flow from Module 6, dollars | (2,550,000) | 535,740 | 596,940 | 554,940 | 524,940 | 503,580 | 503,520 | 980,340 |
| Discount factor at 11.8% | 1.0000 | 0.8945 | 0.8000 | 0.7156 | 0.6401 | 0.5725 | 0.5121 | 0.4580 |
| Present value, thousands | (2,550.0) | 479.2 | 477.6 | 397.1 | 336.0 | 288.3 | 257.8 | 449.0 |
Six Measures
| Method | Result at 11.8% | Result at 15% | Rule | What it says |
|---|---|---|---|---|
| Net present value | about +135,100 | about minus 131,100 | Accept if above zero | Yes at the cost of capital, no at the hurdle |
| Internal rate of return | 13.4% | 13.4% | Accept if above the required rate | Above 11.8%, below 15% |
| Modified internal rate of return, reinvesting at 11.8% | 12.6% | Accept if above the required rate | Yes, with a thinner margin | |
| Profitability index | 1.05 | 0.95 | Accept if above 1 | Five cents of value per dollar invested |
| Payback | about 4.7 years | Accept if within a target | Inside a five-year target | |
| Discounted payback | about 6.7 years | beyond 7 years | Accept if within the life | Barely recovers in time |
What Each Method Sees and Misses
Net present value adds up the discounted value of every cash flow and subtracts the cost. It answers the owners' actual question, how much richer the project makes them, in dollars, and it uses every year's cash. Its weakness is that its answer is only as good as the discount rate and the forecast.
The internal rate of return is the one rate that would make the project's discounted inflows exactly repay its cost. Boards like it because it reads like an interest rate, yet it still has to be set against a required return, and it can rank a small, quick project above a larger one that creates more value, or produce two answers when the cash flows swing from positive back to negative. Here the cash flows are conventional, so the rate and net present value agree at any given required return.
The modified rate assumes cash returned by the project is reinvested at the cost of capital instead of at the project's own rate, a more realistic assumption that lowers the figure to 12.6%.
The profitability index expresses discounted inflows as a multiple of the money put in. It helps when capital is limited and projects must be ranked per dollar, but it says nothing about the scale of the value created.
Payback counts the years until undiscounted cash recovers the cost. It counts a dollar in year four the same as a dollar today and stops looking once the cost is repaid, but it gives a rough sense of how long money stays at risk. Discounted payback corrects the first flaw but not the second.
How Firms Actually Choose
Among the 392 finance chiefs Graham and Harvey (2001) questioned, roughly three in four said they always or almost always computed both a project's dollar value at the required rate and the rate at which that value falls to zero. Payback ranked third and was especially common at smaller companies and those run by older executives without graduate business training, a description that fits many family manufacturers. Haverstock's owners have relied on a hurdle rate and payback for decades, so presenting net present value alongside the methods they know will make the analysis easier to accept.
Why the Methods Disagree Here
The disagreement is not between methods but between rates. At 11.8% every measure says accept; at 15% every discounted measure says reject. The question the board must settle is which rate reflects the project's risk and the company's situation.
Ross (1995) argued that the net present value rule is often applied as if the only choice were to invest now or never. When a project could instead be postponed, accepting it now gives up the option to wait for better information, and a project should be taken today only if its value exceeds that of waiting. Ross suggested that rules of thumb such as hurdle rates above the cost of capital may survive in practice partly because they approximate the value of that option. For Haverstock, the owners' 15% hurdle may be a crude way of saying they would rather wait than accept a project that clears the cost of capital only narrowly.
The discounted payback of 6.7 years supports that caution. The cell recovers its cost in present value terms only in its final year, and only because of $477,000 of salvage and recovered working capital. If the forecast is even modestly optimistic, the project could fail to recover its cost within its life.
The Human Side of Capital Allocation
Graham et al. (2015) surveyed more than a thousand chief executives and financial officers about how they allocate capital among divisions and projects. Net present value mattered, but respondents also reported relying on the reputation of the manager proposing a project, on that manager's confidence and on their own gut feel, especially in firms where the chief executive kept decisions close. At Haverstock, the proposal comes from the plant manager who championed the press brake overhaul the president postponed in Module 1, and the board's trust in that manager may weigh heavily. The analysis should make that judgment visible by stating the assumptions behind every number.
Which Measure Should Govern
Net present value at the cost of capital should govern, because it measures the value the project adds for owners whose money costs 11.8%. On that measure the cell adds about $135,000. But the margin is thin, about 5% of the investment, and the discounted payback warns that the result depends on the final year. Before the board accepts, the project must be tested against the risks in its forecast and against the value of waiting, which is the work of Module 8.
Conclusion
At Haverstock's 11.8% cost of capital, the laser cell adds about $135,000 of value, breaks even at a 13.4% rate and repays its cost in about 4.7 years; at the owners' 15% hurdle, it fails. Graham and Harvey show which methods managers use, Ross explains why a high hurdle can stand in for the option to wait, and Graham, Harvey and Puri show that judgment about people also shapes capital decisions.
References
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Graham, J. R., Harvey, C. R., & Puri, M. (2015). Capital allocation and delegation of decision-making authority within firms. Journal of Financial Economics, 115(3), 449-470. https://doi.org/10.1016/j.jfineco.2014.10.011
Ross, S. A. (1995). Uses, abuses, and alternatives to the net-present-value rule. Financial Management, 24(3), 96-102. https://doi.org/10.2307/3665561
MAT 444 Module 7 instructions, in plain terms
Capital budgeting decision methods fill MAT 444's seventh module, and the paper frequently asks students to evaluate a project with several methods and explain which should govern. Your own classroom's Module 7 prompt comes before this page; the cell, its cash flows and the rates are invented. At minimum, report a dollar value added, a break-even rate and a recovery period, then add the modified rate, discounted payback and profitability index if the prompt lists them. Show the work for each. Explain what each method measures and what it ignores. Find any disagreement among the measures, account for it and say which one deserves the final word, citing the research you draw on in APA 7 style.
How the MAT 444 Module 7 example is put together
The cash flows from Module 6 run from an outflow of $2,550,000 at the start to inflows of about $504,000 to $597,000 a year and $980,300 in year seven. At 11.8% the present value of the inflows is about $2,685,100, for a net present value of about $135,100 and a profitability index of 1.05. The internal rate of return is about 13.4% and the modified rate, reinvesting at 11.8%, about 12.6%. Simple payback takes about 4.7 years and discounted payback about 6.7 years of a seven-year life. At 15% the net present value turns negative, about minus $131,100. Graham and Harvey (Journal of Financial Economics), Ross (Financial Management) and Graham, Harvey and Puri (Journal of Financial Economics) support the discussion of method choice, the option to wait and how capital is really allocated.
MAT 444 Module 7 rubric: what earns full marks
Capital budgeting papers in this course earn credit for correct calculations and, above all, for reasoning about what the numbers mean together. This example lays out a single table so every measure can be compared at a glance, then explains each method's blind spot instead of listing definitions. The analysis shows that the conflict between net present value and the hurdle is about the rate, not the project, and that the thin discounted payback is the real warning in the numbers. Ross turns the 15% hurdle into a question about the option to wait, and Graham, Harvey and Puri explain why the board's view of the proposer may matter in practice. The paper ends by naming net present value as the governing measure and passing the risk questions to Module 8.
MAT 444 Module 7 help: mistakes that cost marks
Weak evaluations compute every measure and then let them vote. Explain instead why net present value is the measure that answers the owners' question and what the others add. A common slip is comparing the internal rate of return with the wrong rate, or treating a high rate as proof of a good project when its scale is small. Students also quote a payback period as though it were complete, never mentioning that it treats a dollar in year four like a dollar today and stops counting once the cost is back. Check that your discount rate matches the project's risk. Put every year's discounted figure in a row of its own so the total can be checked by hand, and name the input that would have to move to reverse your answer.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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MAT 444 Module 7 questions, answered
What does MAT 444 Module 7 usually ask for?
Aspen's MAT 444 covers capital budgeting decision methods in this module, so evaluating a project with net present value, IRR, payback and related measures, and explaining which should decide, is typical. Use your classroom prompt for the required methods.
Which capital budgeting method is best?
Net present value, because it measures the dollar value a project adds at the right discount rate. The others are useful checks.
Why can NPV and IRR disagree?
For a single project they agree at a given rate. They can part ways when projects of unequal size or timing are ranked against each other, or when a project's cash turns negative again partway through.
Where can I find a free MAT 444 Module 7 sample paper?
Above is a free, complete evaluation of an invented laser cutting cell with six capital budgeting methods at two discount rates.
What is discounted payback?
The time until the present value of a project's inflows equals its initial cost. Here it is about 6.7 years of a seven-year life.